Amazon has long touted itself as a customer-first company. Everything about the company is dedicated to bringing new levels of affordability, selection, and transactional ease for customers.

Amazon is also an Amazon-first company. It is extraordinarily disciplined not only about delivering benefits to customers, but ensuring that those benefits make money for Amazon.

 

Amazon’s Competitive Structure

This approach may be great for customers. And it may be great for Amazon, with Q3 2020 revenue up 37% to $96 billion. But it’s not so great for the third-party sellers on Amazon, which brought the company $54 billion in revenue in 2019—Amazon’s second-largest revenue source.

As described in a recent article in The New York Times Magazine, Amazon’s structure for third-party sellers makes it extremely difficult for any seller to gain competitive advantage.

The excellence and omnipresence of the Amazon platform requires that virtually all retailers use that platform to sell their products. In return, those retailers get access to Amazon’s enormous audience and its world-class technology. In today’s business environment, such capabilities are table stakes for customer service and profitability. However, because third-party sellers are beholden to the Amazon platform, they need to play by the Amazon-first rules.

Each retailer is positioned among all other sellers on the platform, including Amazon itself, and so must compete with this huge group on product quality and price. Each retailer has to pay Amazon a cut of its sales—up to one-third. If a retailer wants to stand out among the crowd—for example, be positioned high in the listings—or wants to make use of other Amazon services—such as inventory and fulfillment—that retailer pays even more to Amazon.

Only a few sellers—a very few sellers—with truly top-notch products can distinguish themselves on the Amazon platform. Amazon, on the other hand, wins no matter what.

 

Enter Shopify

Shopify is a technology company rather than a retail company. It provides a sophisticated, reasonably priced white-label e-commerce platform that retailers can use individually. As with the Amazon platform, Shopify’s technology should allow a company with a high-quality product to increase its revenues and profitability. In the case of Shopify, however, the company can distinguish itself outside of the Amazon competitive structure.

Shopify is jet fuel for the profusion of entrepreneurs seeking direct-to-consumer sales. It may not remove the necessity of having a presence on the Amazon platform, but it helps to free companies trapped by the Amazon-first business model.

Of course, even with a more affordable e-commerce platform, companies will only distinguish themselves if they have the know-how to use that platform to their advantage, and if they have a truly distinct and desirable product.

Like retail companies, America’s hospitals and health systems face a steep climb in terms of the money, technology, and talent needed either to build or buy their own digital platforms, particularly for something as complex as telehealth.

Except for the very largest systems, most will likely have to rent the necessary tools. And that invites a comparison with the competitive structure that Amazon and Shopify have created as platform companies in the retail industry.

The sheer size of the healthcare market and the rapid, COVID-catalyzed growth of telehealth are major enticements for tech companies big and small. It is entirely likely that we will see one dominant player emerge as a telehealth platform. That player may even be Amazon, given its continued experimentation in the healthcare vertical. But no matter which company dominates, rest assured that the business model for telehealth will be that company’s business model, not the hospital’s business model.

We can also expect there to be Shopify-like alternatives with scalable, white-label platforms that hospitals and health systems can essentially rent. The level of service will depend on the sophistication of the organization’s telehealth service line. Narrower service lines may only need basic capabilities. Broader service lines may need the full range of video, remote monitoring, artificial intelligence, and more.

Like so many decisions about business growth, telehealth will boil down to build versus buy. How many organizations will build? How big does an organization need to be to build? For organizations that either can’t build their own or can’t build to the desired level of sophistication, will there be Shopify-like options?

 

Competitive Advantage

The Shopify platform means that virtually anyone can be a retail entrepreneur. And a Shopify-style option for hospitals may mean that almost any hospital can offer some level of telehealth services.

However, offering a service is not the same as offering a successful service—a service that generates demand, brings in revenue, earns a margin, and is recognized among competitors as high quality.

Whether an organization builds, buys, or rents a telehealth platform, the division between a good and a truly distinct telehealth service will not reside solely in the platform. Rather, success will depend the organization’s ability to transform that platform into a service that stands out in a crowded and competitive market. And that competitive advantage will depend on three key factors: how well the organization understands the technology, how well the organization markets its services through multiple channels and to multiple audiences, and how well the organization uses the technology to create a care experience that consumers desire.

Platforms are an entry point to the considerable competitive advantage that telehealth can bring to a healthcare organization. But that competitive advantage will only come if you put that platform to work as part of a truly superior virtual and digital product offering.

Meet the Author
kenneth-kaufman.jpg
Image
kenneth-kaufman

Kenneth Kaufman

Managing Director, Chair
Kenneth Kaufman offers deep insights on the economic, technological, and competitive forces undermining healthcare’s traditional business model.
Learn More About Kenneth

Read more Thoughts from Ken